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"Making book against oneself," the Independence Axiom, and Nonlinear Utility Theory

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  • Green, Jerry

Abstract

An individual with known preferences over lotteries can be led to accept random wealth distributions different from his initial endowment by a sequential process in which some uncertainty is resolved and he is offered a new lottery in place of the remaining uncertainty. This paper examines the restrictions that can be placed on an individual's preferences by axioms that stipulate that such a process not be able to generate a new wealth distribution that is prima facie inferior to the original. The relationship of these axioms to the independence axiom of von Neumann and Morgenstern and to the quasi convexity of preferences in the wealth distribution are explored.

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File URL: http://dash.harvard.edu/bitstream/handle/1/3203640/green_makingbook.pdf
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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3203640.

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Date of creation: 1987
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Publication status: Published in Quarterly Journal of Economics
Handle: RePEc:hrv:faseco:3203640

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Cited by:
  1. Jürgen Eichberger & David Kelsey & Burkhard C. Schipper, 2007. "Ambiguity and Social Interaction," Working Papers 0443, University of Heidelberg, Department of Economics, revised May 2007.
  2. Oscar Volij, 2002. "A Remark on Bargaining and Non-Expected Utility," Economic theory and game theory 016, Oscar Volij.
  3. David Laibson & Leeat Yariv, 2007. "Safety in Markets: An Impossibility Theorem for Dutch Books," Levine's Bibliography 122247000000001746, UCLA Department of Economics.
  4. Kim C. Border & Uzi Segal, 2001. "Coherent Odds and Subjective Probability," Boston College Working Papers in Economics 513, Boston College Department of Economics.
  5. Ludwig, Alexander & Zimper, Alexander, 2006. "Investment behavior under ambiguity: The case of pessimistic decision makers," Mathematical Social Sciences, Elsevier, vol. 52(2), pages 111-130, September.

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